On October 29, 2008, Stifel, Nicolaus & Company published their November 2008 edition of The Bank Investor, which discusses the need to leverage TARP Capital to generate reasonable returns.  Here is an excerpt from the Stifel report:

As we noted earlier, some institutions may use the program to facilitate M&A activity.  PNC Financial Services Group, Inc. announced a $7.7 billion participation in the program and at the same time announced the purchase of National City Corporation.  However, those institutions not employing the capital for M&A activity may find that that the investment needs to be levered significantly in order to generate a reasonable return on the preferred stock.  At the end of the second quarter of 2008, the average Tier 1 Leverage Capital ratio for all FDIC insured community institutions was roughly 9.9%.  While it may not be necessary to lever at the current industry average of roughly 10:1, institutions will likely need to grow the balance sheet significantly to achieve a healthy ROE and level of income sufficient to cover the dividend payment requirement for the preferreds.

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